Financial reform

In September 1984 Cabinet considered Keating's proposals to increase competition in Australian banking. Keating affirmed that stringent prudential supervision was required to maintain a viable financial system, but he believed that more competition was needed in the industry. Only one new banking authority had been granted since 1945, while mergers had resulted in the four major banks now holding 81 per cent of bank assets. Cabinet agreed that, with the Treasurer's approval, the maximum holding of a single shareholder in a bank could be raised from 10 to 15 per cent, while a single shareholder might be permitted to hold more than 10 per cent of the shares in more than one bank. Cabinet also agreed to call for applications for a limited number of new banking authorities. Keating told Cabinet that every effort would be made to encourage new domestic applicants, but that some participation by foreign banks would be necessary if strong and innovative new banks were to be established quickly. He proposed to advise foreign applicants that the government's preferred limits of 15 per cent on individual shareholdings and 50 per cent on foreign equity might be eased in order to attract shareholders 'of undoubted financial strength'.

On 27 February 1985 Keating told Cabinet that when he had announced the government's intention to invite applications for new banking authorities he had stressed that only a very limited number of licences would be issued. This strategy had worked well, producing 42 applications, of which more than half were of high quality. Cabinet agreed that 16 of the applicants should be asked to develop their proposals to the stage needed for the granting of banking authorities. Of the 16 applicant institutions, six were from the Asia-Pacific region, six from North America and four from Europe. Eight of the 16 proposals involved Australian equity of between 20 and 50 per cent, while some of the others might consider a measure of Australian equity later.

On 11 October 1985 Cabinet considered a series of proposals by Keating to ease controls on foreign investment in Australia. Under current arrangements all new resource and development projects, other significant new businesses, most real estate acquisitions and all takeovers of existing businesses were subject to formal scrutiny. This reflected public concern about foreign ownership and control of industries and resources, although the Business Council of Australia favoured relaxation of the policy to encourage development and reduce unemployment. Keating did not favour abandoning all controls, but Cabinet accepted a range of reforms, including raising the threshold for scrutiny of foreign takeovers under the Foreign Takeovers Act from $3 million to $20 million and an easing of controls on the sale of Australian land to foreigners.